In re Morgan
| Decision Date | 24 September 2007 |
| Docket Number | No. 07-6010.,No. 07-6016EA.,07-6010.,07-6016EA. |
| Citation | 375 B.R. 838 |
| Parties | In re James MORGAN and Linda Morgan, Debtors. James Morgan and Linda Morgan, Plaintiffs, v. Jo-Ann L. Goldman, Defendant-Appellant, Bank of America; Capitol One Bank; AR Specialty Care Centers; eCAST Settlement Corporation; DeWitt Bank & Trust Company; DeWitt City Hospital; Discover Bank; St. Vincent's Health System; and Kyle Havner, Defendants. In re Janet Lavern Dedmon, Debtor. Jo-Ann L. Goldman, Trustee-Appellant, The National Association of Chapter Thirteen Trustees, Amicus on Behalf of Appellant. |
| Court | U.S. Bankruptcy Appellate Panel, Eighth Circuit |
Isaac A. Scott, Jr., Little Rock, AR, for Appellant.
Henry E. Hildebrand, III, Nashville, TN, for Amicus.
Before KRESSEL, Chief Judge, FEDERMAN and MAHONEY, Bankruptcy Judges.
Appellant Jo-Ann L. Goldman is one of three standing Chapter 13 trustees for the Bankruptcy Court in the Eastern District of Arkansas. In these consolidated appeals, Ms. Goldman appeals from orders entered in two cases in which two of the bankruptcy judges sitting in the Eastern District of Arkansas removed her as trustee in all pending cases.1 For the reasons that follow, we reverse the Order entered in the Dedmon case and affirm the Order entered in the Morgan case.2
James and Linda Morgan filed a voluntary Chapter 13 petition on March 3, 2003, and Ms. Goldman was appointed as the trustee in their case. On July 30, 2003, the Morgan judge confirmed an amended plan which provided for monthly payments of $775 for 58 months. The Morgans' residential mortgage lender (their only secured creditor at the time) was to be paid the full value of its claim, $32,500, with interest, through the plan. General unsecured claims, which totaled $40,456.57, were to "receive a pro rata dividend from funds, remaining after payment of administrative, secured, priority, child support, and special nonpriority unsecured claims." There were no priority, child support, or special nonpriority unsecured claims. Thus, out of the regular monthly payments, it was anticipated that the costs of administration and the home mortgage would be paid first by the trustee, with any remaining funds being paid to unsecured creditors. However, the plan further provided that all of the Morgans' projected disposable income received during the first 36 months of the plan would be paid in for the benefit of unsecured creditors in accord with § 1325(b)(1). This latter provision became important because the Morgans settled a personal injury, tort claim during those first 36 months.
On March 29, 2005, the Morgans moved for court approval to settle a tort claim which they had listed in their schedules as an unliquidated claim with an unknown value. After payment of attorneys' fees and costs, the settlement was to generate $30,056.03 in net proceeds. The Morgans' motion to approve the settlement stated, in relevant part, "[f]unds to be remitted to the Chapter 13 Trustee to be distributed pursuant to the debtors' confirmed plan, with the exception that debtors will be allowed to request a refund in a sum sufficient to replace the roof on their home and repair debtors' vehicle."
After the motion to approve the settlement was filed, and before the Morgan judge entered an order approving such motion, Ms. Goldman and the Morgans' attorney, Jeremy Bueker, discussed the distribution of the settlement proceeds in a series of e-mail and telephone conversations. In addition to requesting a refund of a portion of the proceeds for roof and vehicle repairs, the Morgans wanted all of the remainder to be used to pay off their home mortgage. Ms. Goldman, on the other hand, took the position with Mr. Bueker that the funds not being refunded to the debtors were projected disposable income which, under the plan, should be paid by the trustee to unsecured creditors. Therefore, she asked that the order approving the settlement provide either that she pay such funds directly to unsecured creditors, or that future payments continue so that an equivalent amount would be made available to such unsecured creditors. As to the distribution of the portion not to be refunded to the Morgans, the following e-mail exchange occurred between Ms. Goldman and Mr. Bueker on April 25 and 26, 2005:
From Ms. Goldman to Mr. Bueker:
Jeremy —
I need you to revise this Order. If a case is under 36 months we consider proceeds of this nature disposable income only to the extent that the debtor does not get a refund that is reasonably necessary for her to live — so, any proceeds from a settlement that we don't refund to the debtor would be paid as such, i.e., they would be paid to unsecured creditors, or the base balance would be raised by the amount of the proceeds (if we elect to go ahead and let the secured get paid.) The way your order reads, you want it to be paid towards the base (disbursed pursuant to the plan) as if they were in place of regular monthly payments. So, I need you to simply revise the Order that states that the proceeds will come to the trustee.
From Mr. Bueker to Ms. Goldman:
My intention was to be certain that secured and priority creditors are paid in full before money is disbursed to unsecured creditors and to make certain that debtors can request a refund. If the base needs to be raised to accomplish this, that is fine. What language do you suggest that I use to make sure that is how money is disbursed? Mr. and Mrs. Morgan understand that their payments to the Trustee's office are to continue.
From Ms. Goldman to Mr. Bueker:
The problem is that is not how extra disposable income is supposed to work — that money is for unsecured creditors — I can do that, but the base will have to be raised. Just state the money is coming to my office period. We put the money on hold for 30 days for the debtor to request the refund.
From Mr. Bueker to Ms. Goldman:
If I state that the money comes to your office period, will you first pay off secured and then priority claims before money is disbursed to unsecured creditors? If not, I think the debtors are better off dismissing or converting to Chapter 7. I advised them to proceed this way so that their house would be paid off.
From Ms. Goldman to Mr. Bueker:
I will pay it out but add whatever the amount is to the base, so the unsecured creditors are being paid with the monthly payments.
From Mr. Bueker to Ms. Goldman:
Attached is the revised Order.
On April 26, 2005, having received no objections to the motion to settle, the Court entered the Order which was referenced in the e-mails, as prepared by Mr. Bueker and modified at Ms. Goldman's request. Such Order stated that there had been no objection to the March 29, 2005 Motion, and that the "Motion "appears proper, and the same is GRANTED." It went on to state that the $30,056.03 in proceeds were "to be utilized as follows: Said funds shall be paid to the Chapter 13 Trustee Jo-Ann Goldman and Debtors may apply for a refund from said funds." Notably, the Order does not state anything as to whether, or how, Ms. Goldman was to distribute the rest of the proceeds, other than the refunded portion. Thus, despite any intervening e-mails or telephone conversations between Mr. Bueker and Ms. Goldman, the Order served to grant a Motion stating that the funds not being refunded were to be "distributed pursuant to the debtors' confirmed plan."
On May 5, 2005, Ms. Goldman received $30,056.03 in net proceeds from the settlement.
Apparently, at that time, it was customary in the Eastern District of Arkansas for debtors to request refunds from the trustee, and for the trustee to grant or deny such requests based on his or her own judgment. No court approval was required, no matter how large the request, unless the trustee decided that the request was not necessary for the debtor's reasonable living expenses. Hence, the provisions in the motion to settle and the accompanying Order which allowed for a refund meant that the Morgans needed only to ask Ms. Goldman for the refund.
On May 6, 2005, the Morgans did ask Ms. Goldman for a refund of $9,094.17 to replace their roof and repair a vehicle, and supported their request with written estimates of costs. On May 18, 2005, Ms. Goldman refunded more than they had requested, $10,000, without notice to creditors or a court order.
As to the $20,056.03 in proceeds remaining after the refund (sometimes referred to as the "$20,000 amount"), Ms. Goldman later testified, as described more fully below, that she intended to make a notation in her files not to distribute the funds to unsecured creditors, but she neglected to do so. Accordingly, when the next monthly disbursement day came around, her office distributed the $20,000 amount to general unsecured creditors pursuant to the office's established procedures, instead of using those funds to pay off the Morgans' home mortgage.
On August 30, 2005, the Morgans filed an adversary proceeding for turnover against Ms. Goldman personally, as well as against the unsecured creditors who benefitted from the distribution of the $20,000 amount. The Morgans asserted that the distribution to unsecured creditors violated the plan provision requiring that unsecured creditors would receive a dividend "from funds remaining after payment of administrative and secured claims." Further, the Morgans asserted, the distribution violated an agreement between Mr. Bueker and Ms. Goldman to distribute the money to the mortgage lender. In her Answer, filed September 9, 2005, Ms. Goldman stated that her office had properly distributed the funds under the terms of the plan and the Bankruptcy Code.
Thereafter, and while the adversary...
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